Unlock the £500 Pension Advice Exemption To Save Tax & Maximise Your Retirement

Save over £350 a year with tax exempt personal pension advice

Written by 
James Morgenstern
Updated on
February 19, 2024

As a company director, freelancer, or contractor operating through your own limited company, planning for retirement is paramount. However, you might not be aware that the tax system offers a generous exemption designed to assist with pension-related decisions.

This exemption can save you over £350 of tax each year, so let’s  delve into the specifics of the £500 pension advice exemption to understand how it works, can lower your tax, and benefit your finances.

What Is the £500 Pension Advice Exemption?

The UK government offers a tax exemption of up to £500 per tax year for pension advice arranged by an employer. This means that the employer can pay for up-to £500 of personalised pension advice for the employee or director, and write the full cost through the company with no benefit in kind tax for the recipient.

This financial incentive is intended to encourage employees to seek professional guidance on pension planning, which is crucial to ensuring a comfortable retirement.

What Does the Exemption Cover?

The £500 exemption isn't limited to just basic pension advice. It encompasses a wide range of services, such as:

  • General financial guidance regarding pensions
  • Tax advice specific to pensions

Whether you are nearing retirement due to age, or you're considering early retirement due to ill health, the tailored advice you receive will be covered by the exemption.

How much are the tax savings?

To understand the tax savings of buying this advice through your company, let's run through an example assuming you intend to use the full £500 pension advice exemption.

  • At a corporation tax of 20%, you will save £100 of corporation tax (0.2 * £500 = £100)
  • In addition, because the company is bearing the cost you will save approximately £250 of personal tax.
  • This is because, if you’re a higher rate tax payer,  you'd need to earn £754.71 of dividends to be left with £500 after paying £254.71 of tax on dividends at 33.75%.

In total therefore, the corporation tax and income tax savings amount to a whopping £354.71 - and you can claim this tax saving each year!

Therefore if you wanted to pay for any pension advice, it is incredibly tax efficient to do this via your business (rather than pay for it personally).

How do you claim the tax saving?

Claiming the tax saving in Mighty is incredibly easy, here's how to do so in 3 simple steps.

  1. Buy the advice through your company, and find the transaction in your bank feed
  2. Select the transaction and categorise it as a 'Professional Services' under the Overheads tab
  3. Click 'Approve' and Mighty will automatically apply the tax savings for you in real time.

And that's it, you've just saved yourself over £350 of tax 100% legally!

If you're not with Mighty: You should make a note of this transaction, and let your accountant know what the specification transaction(s) is for, and the tax exemption you're using. They should then be able to claim the exemption and apply the tax deduction manually for you.

Eligibility for the Exemption

To capitalise on this exemption, certain conditions must be met:

  • Employer Payment or Reimbursement: The cost of the advice must be paid by the company, either by directly paying for the advisory services or by reimbursing you as the employee and director.
  • Accessibility: The advice should be available to either all employees at your company or just those at a particular location. If you’re a ‘one person’ company, this still applies to you.
  • Personalization: It caters even to those whose pension advice needs are specific to their personal situation, such as those nearing retirement due to age or ill-health concerns.

Note that as a director of your company, you essentially fall into the 'employee' category for tax purposes, and can thus benefit from this exemption.

Why Seek Pension Advice?

Planning for retirement can be complex, especially for independent professionals who need to manage their finances in a way that aligns with both their personal and business goals. Pension advice can help you:

  • Understand how much you need to save
  • Make informed decisions about investment choices
  • Optimize tax benefits related to pensions

This tax exemption is particularly beneficial because it not only covers the nitty-gritty details of pension schemes but also the overarching financial strategies and tax implications associated with planning for a comfortable retirement.

Mighty: Your Partner in Tax & Accounting

Understanding pensions and tax exemptions is just one piece of the financial planning puzzle for freelancers and contractors.

At Mighty, we specialise in making accounting fast, easy, and affordable. We provide jargon free tax advice, with easy to use software and expert accountants on hand to help.

If you're interested in simplifying your accounting, understanding your finances, and getting the most out of your money, visit Mighty Accounting for a full free 30 trial - no credit card required!

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